Performance budgeting is a type of budgeting system used by some governments and organizations to track precisely how much the services and activities of an organization should cost, what their outputs should be, and how to measure the performance of each activity or service. In performance budgeting, the aim is to better allocate resources on the basis of the estimated results, as well as to give an accurate picture of an organization's activities in terms of costs, efficiency, and performance.

In essence, a performance budget is a budget that takes into account both the investment of resources and the expected outcome of the services provided by a given department or unit. Performance budgets allocate funds at the micro-level of individual departments, programs, or projects, rather than at the macro-level of the entire organization. It is important to note that performance budgeting can be used both in the public and private sectors, indicating a significant degree of flexibility.

The main advantage of performance budgeting is that it is an effective way to prioritize resources and focus them on achieving a given set of results. By being precise and specific with the output desired, and allocating resources accordingly, performance budgeting allows for each unit to maximize its performance and capitalize on the results it produces. Furthermore, performance budgeting allows decision-makers to better allocate funds to those areas and services in greatest need of financial support.

On the other hand, performance budgeting also has certain disadvantages, such as the potential for disagreements over spending priorities and a lack of unified cost standards. Additionally, there is the possibility that certain areas and services may not get sufficient funding, as units can tend to overestimate their own needs, leading to an increase in inefficient spending that is not necessarily productive.

All in all, performance budgeting is a useful tool that can be used to help ensure the wise allocation of resources and to produce positive results. However, it is important to bear in mind that the potential difficulties associated with this system. Therefore, it is essential to ensure proper and efficient management of funds in order to get the most out of the performance budgeting approach.